Seeing in colour

Is the idea of a changing industry real or fantasy, asks Rob Macdonald

There is much talk about how the industry is changing. How regulation and robots are teaming up to carve the financial planning profession into something unrecognisable. How there is an existential need for advisors to shift from selling to advising. Bill Bachrach, a US financial advisor coach, for the past 20 years has implored financial advisors “to be a trusted advisor, not a salesperson”.

Yet it is easy to scan the industry terrain and conclude that this is all much ado about nothing. Ethical scandals and regulator adjudications the world over still show the lack of trusted advice given to clients. Many product providers show no loss of appetite for offering products that appear to be of more benefit to their own businesses and to salespeople masquerading as advisors, rather than being of benefit to clients. When it comes to technology, despite the direst predictions, robo-advisors are not taking over the world.

So we may be seduced into thinking that yes, the industry will change, but it’s not going to be that radical. For now, it’s business as usual, maybe with a tweak here or there. Such is the nature of change. It is resisted at first. The direst of predictions are always the loudest, whether for or against the change. Like it or not, though, change is actually happening.

I saw this recently in London at the 2018 Humans Under Management (HUM) conference held at the Royal College of Physicians. No, this is not a medical conference. It is a financial planning conference with a difference: the brainchild of a UK financial advisor, Andy Hart, who recognises the power of financial planning and that it is not just about money, but about people’s lives in their entirety. He points out that “making bad decisions around your money and financial planning will have a profound impact on you and the generations that come after you. If we can alter the financial direction of millions of families, just think of the good we can do.”

Hart believes that there’s no such thing as money troubles: there are only humans with money troubles. “And the real problem is that all of the studies prove humans are bad decision-makers – show me a study that says humans are rational.” Hart’s hope for HUM is that it “will promote, highlight and build on the work that great advisors are doing to develop their behavioural financial advice practices.” As he puts it so profoundly, “For me, this is like seeing colour television, when the rest of the profession is still in black and white.”

In a way, Hart is suggesting that financial advisors should be less concerned about change and more concerned about self-identity. If your world is black and white, it’s very hard to see colour. If you see yourself as a salesperson, it’s very hard to be a true professional advisor. James Clear, in his new book Atomic Habits, talks about the fact that it is very hard to change habits unless you change how you see yourself. A smoker who wants to give up smoking is more likely to succeed if when offered a cigarette, they respond with “I’m not a smoker” rather than “I’m trying to give up.”

But even if you are able to change your self-identity, there is still a need to develop new habits and skills. HUM 2018 London highlighted some of the habits and skills advisors operating in a world of colour need to develop. The 240 advisors attending the conference were challenged to focus first and foremost on the human being who is their client, rather than simply on the client’s money. A number of practitioners and experts talked to this theme and how it can be practically and effectively done. When it comes to the human substitute, namely technology, a common message emerged. Computers will do lots for your clients. But they can’t do the human connection. Arguably the computer part is easy. The human stuff is not. Yet it is where the real value lies.

Robin Powell, who writes a blog entitled “The Evidence Based Investor” said in his presentation at HUM 2018 London that “Behavioural Coaching is the single most important thing that a financial planner can do for a client”. This view is echoed by many practitioners and experts such as Nick Murray, author of Behavioural Investment Counselling, and research by Vanguard, Morningstar and others. They all see the greatest value of a financial advisor being in behaviour modification.

As the lead facilitator on the inaugural Allan Gray Behavioural Coaching Programme, I’ve seen that recognising this is a good first step, but actioning behaviour modification is tough. Some 134 financial advisors have enrolled in this programme because they recognise the future of financial advice is a world of colour television. But many, who have been in a black and white world for some time, are finding developing the skills of a colour world a challenge. Kudos to those advisors who have embarked on this challenging journey of self-discovery and new skills development. It is not easy, but it is the financial advisor of the future. Or as Andy Hart puts it, “This isn’t a fad or a phase – this is who we are.”

For advisors who think they are part of the world of colour television, or for those who want to check if this is a fad or not, the good news is that the Humans Under Management conference will happen in South Africa in September 2019. For any doubters out there, the conference will prove beyond doubt that the industry is changing irrevocably, and we definitely do now live in a world of colour television.